Portugal's golden shares in EDP are unlawful

By Leo Gasteen

The European Court of Justice (ECJ) ruled that by retaining Energia de Portugal special rights attributed to it by means of Golden Shares, Portugal has failed to fulfil its obligation to the fundamental principle of the free movement of Capital.

The ruling comes after an action was filed by the Commission challeging Lisbon's special rights, which it considered to be contrary to the pinciples of free movement of Capital.

Energias de Portugal (EDP) was converted into a public limited company in 1991, further to the restructuring of the Portuguese electricity sector. Between 1997 and 2006 EDP was privatised in six successive phases. Currently, the Portuguese State holds 25.73% of the share capital, and as such retain Golden shares

The Decree-laws approving EDP’s privatisation conferred on the Portuguese State, in addition to that right of veto, the right to object to the election of directors, and to appoint, in that event, a director to replace the person elected with the fewest votes or last on the list. Moreover, whereas EDP’s articles of association provide that the votes of ordinary shareholders holding more than 5% of the share capital will not be taken into account, the State or equivalent bodies are not subject to that ceiling

The ECJ, Europe's highest Court, declared that the 'illegal arrangement' gave more rights to Lisbon that the average shareholder, irrespective of the amount of share capital it held. It also held that Lisbon's exercising of the special rights attributed by the Golden Shares constitute a 'restriction on that fundamental freedom'.

As such it ruled the arrangement to be illegal, and contary to the principles of the free movement of Capital within the EU.

The European Court of Justice -  Justice and Application - Commission Vs. Portugal Full Text